41(b) failed coverage

[Guest Pension Girl]

If it is discovered that a plan failed coverage for the 2009 plan year and it is just now discovered - plan year ended 6/30/2009 -what is the correction?

Is there a problem in correcting it late?

[Guest Sieve]

OK until middle of 10th month after end of plan year (i.e., until 4/15 for 6/30 plan year end). (See Treas. Reg. Section 1.401(a)(4)-11(g), especially -11(g)(3)(iv).)

[Guest Pension Girl]

If they miss the deadline and fail to correct, what is the consequence - that the account balances of the HCE's become taxable? I guess it only matters if they get audited.

[Tom Poje]

you are correct, if you pass the deadline, it can be plan disqualification, or you can correct under VCP

[Guest BXO]

Does the 9 1/2 month deadline apply solely to the -11(g) amendment?

What if additional allocations are given per the terms of the existing document, and that happens after the 9 1/2 month period? Is VCP necessary?

[Guest Sieve]

VCP is necessary (since self-correction does not apply to demographic failures).

[Tom Poje]

I think if the document contains failsafe language then you have a failure to follow the terms of the document, e.g that you would correct a failed coverage problem. this would then become an operational problem , and in that case you could fix the problem under SCP.

but its been awhile since I've seen the verbage for failsafe language. but I thought that was the idea of failsafe language that you could fix those problems - at the price of giving up the average benefits test to possibly pass coverage testing instead.

[Guest Sieve]

I'd agree, Tom.